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Financial Statement Analysis and Ratios, Cheat Sheet of Financial Management

The importance of financial statement analysis and the different types of ratios used to evaluate a company's financial performance. It covers horizontal and vertical analysis, common-size statements, and DuPont analysis. It also discusses liquidity, profitability, leverage, and activity ratios, as well as earnings per share, dividend yield, and price-earnings ratio. useful for anyone interested in understanding financial statements and evaluating a company's financial health.

Typology: Cheat Sheet

2021/2022

Available from 12/01/2023

jai-mehta
jai-mehta 🇺🇸

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FINANCIAL'MANAGEMENT'
CHAPTER'3
1. Financial Statement Analysis:
- Importance: Financial statement evaluation involves comparing
a corporation's monetary performance, position, and coins flows
for choice-making.
- Users of Financial Statements:
- Internal: Management, employees.
- External: Investors, creditors, analysts, regulatory government.
2. Horizontal Analysis:
- Definition: Also called trend evaluation, it compares economic
information over one of a kind intervals to perceive traits and
modifications.
- Formula: ((Current Year - Previous Year) / Previous Year) * a
hundred.
- Purpose: Identifies boom quotes or declines in financial line
items.
3. Vertical Analysis:
- Definition: Expresses every line object on a monetary assertion
as a percentage of a base object.
- Formula: (Individual Item / Base Item) * a hundred.
- Purpose: Helps recognize the composition of different additives
in terms of a total or base.
4. Common-Size Statements:
- Definition: Presents all objects as probabilities of a
commonplace base, normally general revenue or general assets.
- Purpose: Facilitates contrast between businesses of different
sizes.
5. Ratio Analysis:
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FINANCIAL MANAGEMENT

CHAPTER 3

1. Financial Statement Analysis: - Importance: Financial statement evaluation involves comparing a corporation's monetary performance, position, and coins flows for choice-making. - Users of Financial Statements: - Internal: Management, employees. - External: Investors, creditors, analysts, regulatory government. 2. Horizontal Analysis: - Definition: Also called trend evaluation, it compares economic information over one of a kind intervals to perceive traits and modifications. - Formula: ((Current Year - Previous Year) / Previous Year) * a hundred. - Purpose: Identifies boom quotes or declines in financial line items. 3. Vertical Analysis: - Definition: Expresses every line object on a monetary assertion as a percentage of a base object. - Formula: (Individual Item / Base Item) * a hundred. - Purpose: Helps recognize the composition of different additives in terms of a total or base. 4. Common-Size Statements: - Definition: Presents all objects as probabilities of a commonplace base, normally general revenue or general assets. - Purpose: Facilitates contrast between businesses of different sizes. 5. Ratio Analysis:

  • Importance: Ratios offer insights into various aspects of a organization's economic performance and health. Categories of Ratios:
  • Liquidity Ratios: Measure the potential to meet quick-term responsibilities (e.G., cutting-edge ratio, brief ratio).
  • Profitability Ratios: Assess the capacity to generate earnings (e.G., net profit margin, return on equity).
  • Leverage Ratios: Evaluate the capital shape and monetary danger (e.G., debt-to-fairness ratio).
  • Activity Ratios: Gauge performance in handling assets (e.G., inventory turnover, accounts receivable turnover). 6. DuPont Analysis:
  • Definition: Decomposes go back on fairness (ROE) into three additives: profitability, asset turnover, and monetary leverage.
  • Formula: ROE = Net Profit Margin * Total Asset Turnover * Equity Multiplier.
  • Purpose: Identifies elements contributing to changes in ROE. 7. Earnings Per Share (EPS):
  • Calculation: (Net Income - Preferred Dividends) / Weighted Average Number of Shares Outstanding.
  • Importance: Indicates the business enterprise's profitability on a in line with-percentage basis, vital for buyers. 8. Dividend Yield:
  • Calculation: Dividends Per Share / Market Price Per Share.
  • Purpose: Indicates the return on funding from dividends relative to the stock rate. 9. Price-Earnings Ratio (P/E Ratio):
  • Calculation: Market Price Per Share / Earnings Per Share.
  • Importance: Measures investors' expectancies and the market's perception of an enterprise's destiny income. 10. Statement of Cash Flows:

Conclusion: Financial announcement evaluation is a vital talent in monetary control, permitting stakeholders to make knowledgeable choices. Various tools, which includes horizontal and vertical analysis, ratio evaluation, and DuPont evaluation, provide a complete view of a organisation's monetary fitness. Understanding the constraints and ethical considerations is critical for accurate and accountable financial statement analysis.